by James C. Sherlock

Sometimes you have to laugh to keep from crying.

The Guardian, a UK-based tabloid with a U.S. edition, wrote a thunderous exposé about UnitedHealth. The title: Revealed: UnitedHealth secretly paid nursing homes to reduce hospital transfers.

First paragraph:

UnitedHealth Group, the nation’s largest healthcare conglomerate, has secretly paid nursing homes thousands in bonuses to help slash hospital transfers for ailing residents – part of a series of cost-cutting tactics that has saved the company millions, but at times risked residents’ health, a Guardian investigation has found.

The details of United Health’s alleged activities were well reported and gut wrenching. UNH stock, already weak, cratered.  

But the story entirely missed the larger context.

Readers of that article, and perhaps its author, are left ignorant of the fact that Medicare and Medicaid do the same thing — pay for lower re-hospitalizations — for the same reason that UnitedHealth does. Money.

Payers. Centers for Medicare and Medicaid Services (CMS) uses multiple measures to reward or penalize nursing homes in its value-based purchasing system. One is Skilled Nursing Facility Within-Stay Potentially Preventable Readmission (SNF WS PPR) Measure. Section 2.2 Purpose/Rationale for the Measure focused on cost savings.

Hospital readmissions among the Medicare population are common, costly, and often preventable. The Medicare Payment Advisory Commission (MedPAC) and a study by Jencks et al. estimated that 17-20 percent of Medicare beneficiaries discharged from the hospital were readmitted within 30 days. Among these hospital readmissions, MedPAC has estimated that 76 percent were considered potentially avoidable and associated with $12 billion in Medicare expenditures.

Medicare and Medicaid offer bonuses and levy financial penalties on hospitals and nursing homes for their performances in that measure and several others.

Medicare, Medicaid and UnitedHealth all claim to be motivated to improve patient care. OK. Maybe.

But the CMS Purpose/Rationale quoted above says nothing about patient outcomes. Indeed the program itself incentivizes for-profit chains or private insurers to set policies such as required corporate medical consultations that delay taking to ERs and hospitals patients whose health and lives – think strokes and sepsis – depend on immediate action.

Both government and private payers save tons of money — roughly $2,000 per day per patient — when they are in a nursing home bed rather than a hospital bed. Which is why they impose the three-day rule on hospital stays if the patient can be safely transferred to a SNF for continuing care.

Both save even more money when we die.

Providers. There are nearly endless treatises, studies and federal regulations that specify what ought to be done by both hospitals and SNFs to reduce preventable hospital readmissions. But all of those excellent prescriptions require of the providers for their fulfillment some combination of compassion, professionalism and fear.

In stark financial terms, it is in the financial interest of nursing homes to keep patients alive. But they make the most money when patients are barely alive. When patients get better, transfer back to the hospital or die, the money stops. That alone is a major financial motivation for nursing homes to avoid patient hospital readmissions without the extra incentive of bonus payments from government and private insurers.

We will use as example the largest chain of nursing homes in Virginia.

Medical Facilities of America (MFA) profitability. The cost of sanctions in Virginia is overwhelmed by the profits available.  

Take for example Lakewood, NJ-based private equity firm Medical Facilities of America (MFA) and its 37 nursing homes here. Those nursing homes posted a net income of more than $85 million in 2023 from the highest average margins among competing chains.  

One measure of profitability is return on assets.

Return on assets represents the dollars in earnings or Net Income a company generates per dollar of assets. ROA is typically used to gauge the efficiency of the company and its management at deploying capital to generate income for shareholders.

A good ROA for a real estate investment rental property typically ranges from 6% to 10%. For another investment comparison, chip giant NVIDIA’s current ROA is 65%.  

The 30 nursing homes that the current owners of MFA bought for their investors in 2021 averaged 89% ROA in 2023, the last year for which vhi.org has data. Preposterous. And because of the way it was achieved, deadly.

MFA operational performance. For graphical display of MFA operational performance, we will use Virginia Medicaid’s Value-based Purchasing Dashboard.  

The first chart is constructed from the Facility Overview option.  I selected from the dropdown menu each of the 37 Virginia facilities of MFA and hit enter.  I then entered total nurse staffing as the measure. The resulting graphic shows the total nurse staffing trends of MFA nursing homes versus the trends of Virginia nursing homes as a whole between 2020 and 2023.

The chart demonstrates that when the owners of MFA (May 2021) and sister company Innovative Healthcare Management (IHM) (January 2020) took control, staffing collapsed. And collapsed is the right word.

I added comments to the chart to provide context. Between 2020 and 2023, staffing among the 290 nursing homes across the state improved at the better and best thresholds and collapsed at the lowest threshold. The statistical reason for the divergence is that the good ones got better and the worst ones got worse. MFA facilities are demonstrably in the latter category, as are other New Jersey and New York-based chains operating in Virginia.

Then I entered the measures hospital readmissions and emergency department visits.  Again gray represents MFA assets.

Who could have guessed that when nurse staffing went down ED visits and hospital readmissions would go up? MFA must have been hammered for that by the government, right?  

Wrong.

Failed government oversight. We depend on government and private (tort) sanctions to cause the costs of violations of federal law and regulations to nursing homeowners to exceed the savings realized from the violations. In Virginia, they most certainly do not.  

We know from state inspection results and federal data that too many nursing facilities here directly violate federal nursing home laws embedded in the Social Security Act and CMS regulations. If enforced, those existing rules are more than sufficient to keep nursing homes in line. Unfortunately, that is the failure point in Virginia. Several artifacts of that failure include:

1. Virginia does not hold up its end of an inspection contract with CMS. The Virginia Department of Health agreed to inspect nursing homes annually for CMS. It does not. It is intentionally understaffed by the General Assembly. With the people it has, it is lucky to conduct the “annual” health surveys for Medicare and Medicaid certification every three years. And the feds put up with that, even though those inspections form the heart of its sanctions regime.
2. Government regulatory oversight is supposed to be based on those health surveys, complaint inspections and on violations identified in payroll-based quarterly reports of daily staffing and other mandated reporting. Enforcement is non-existent at the state level. Virginia has never in its history closed a nursing home for cause. Not one. 
3. Virginia nursing home laws are intentionally weak. They barely meet the minimum requirements of the Social Security Act for state legislation.
4. Prosecution in federal court of well-documented violations of federal nursing home laws has been notable mostly for its absence in Virginia.

The Virginia General Assembly. Unscrupulous investors have and continue to flock to Virginia to buy nursing homes. They do not bring new technology or better management to the task, but rather well-documented overcrowding, skeleton staffs, patient abuse and suffering and premature deaths.    

But the overcrowding is considered by advocates of Virginia’s Certificate of Public Need (COPN) law to be a feature, not a bug of that law. The legislators who support that law want them to be crowded, without competition and making enough money to fund large campaign donations. They call that constituent service. Those worthies must consider themselves and their loved ones either immortal or at least above needing to ever use a nursing home.

The worst Virginia facilities are primarily controlled by out-of-state private equity firms which understaff as a business model. I have documented that here extensively since 2020. CMS knows it — it is their data that I use. Virginia’s Health Commissioners have known it. So have Virginia’s Attorneys General and U.S. Attorneys.  

Hospital responsibilities. The last thing I will discuss is the most disappointing to me personally. Too many hospitals simply do not care about the staffing or the medical track records of the SNFs with whom they contract and to which they transfer patients. It makes no sense to me unless the insurance companies that are integrated into the corporate structures of some of the hospital regional monopolies are driving the decision. Some clearly negotiate a sufficient discount to ignore patient wellbeing and put bad nursing homes on their Preferred Provider Organization lists.  

Yet hospital systems without integrated insurers do the same thing. I don’t get it.

If hospitals cared they could check Medicare Compare and recommend only facilities to which they would send their own mothers. That scandal is a lot less reported on and a lot more responsible for bad nursing homes than UnitedHealth can ever be.

That seems something that the Health Commissioner can address with a “Dear Colleague” letter. I hope she will.

Bottom line. Pointing fingers at UnitedHealth may make us feel better, and that company should certainly do better, but it is not the key problem here.

Virginia voters are.  

We continue to elect part-time General Assemblies that receive unlimited campaign donations. Too many members of both parties take the money, vote as told and do not ask the consequences to real people, caring rather which power players are for it and which are against it.  

Expecting effective government oversight in that situation is a fantasy, in this case a horror movie.